There's more to Microsoft than Windows but I'll focus on Windows8 here.

Far too many people are chanting the death of the PC. Your parents PC may be obsolete but the platform is very much alive and evolving. It will continue evolving till somebody figures how to bring the PC levels of productivity to tablets and phones. Also, when battery life is long enough for them to be depended on. Mobility is a complement, not a replacement for the PC ecosystem.

Windows8 fell in the unenviable bottom of the 20 year old sentiment that cycles from excitement to disappointment.

In spite of all the doom and gloom W8 is the best operating system Microsoft has ever produced (almost a million PCs are sold every day, popular sentiment be damned).

It appears that this will be a repeat of the Vista debacle whose shortcomings were corrected by Windows7. W7 is so Vista that Microsoft didn’t even bump the internal version sequence. In fact, W7 is such an incredibly good product that it will make it very difficult for successive releases of Windows to establish and lay claim of their own niches.

W9 will most likely correct the issues that infuriated many W8 users. WindowsRT (the new OS glued with Windows8) breaks off from the venerable Win32 API. It fused DirectX with the kernel. A gigantic bet that will take a few years to pay off as it broke backwards compatibility. Steven Sinofsky pushed RT very aggressively and judging from the commentaries in the blogosphere a large percentage of users have pushed back.

Sinofsky is out and W9 will probably have an option allowing users to retain the classic user interface and hide the Metro tiles. Maybe there will be a service pack with that option.

Anyhow, essentially a decent quarter for Microsoft. FY12 ending in June will probably be decent too. Looking forward to a much better FY13 and FY14 with W9.

There are a couple of things perhaps worth noting here:1) The 11% y/y growth in Windows division is a decent number, but it falls very far short of the 70% y/y growth in that division that accompanied the Win7 launch.2) A decrease in YoY profit during a Windows launch quarter is discouraging. I suspect that has never happened before (though not sure about the Vista launch)3) Losses attributed to 'Corporate level activity' grew by a staggering $442M YoY, and this explains why overall profits were down even though almost all the division numbers improved significantly. Any ideas what this is due to? Marketing for Win8 and Surface?4) Perhaps the biggest positive note here is the huge decrease in losses Online Services division. If this represents a real trend and not just an accounting gimmick (see 3), then this is major progress toward breakeven in Online, which is potentially huge news for MS's long term growth prospects.

So according to the markets you should pay a P/E of 10 for Apple's unacceptable profit growth of around 8% year over year (when you adjust for Apple's Q1 being a week shorter this year). Meanwhile, you should pay 15:1 for Microsoft whose profits are actually shrinking 3% year over year. Of course Apple has Samsung threatening its cash cow, whereas Microsoft's Office/Windows cash cow is completely safe aside from a few minor threats such as tablets, phones, the internet, Google, Apple, etc.

W9 will most likely correct the issues that infuriated many W8 users. WindowsRT (the new OS glued with Windows8) breaks off from the venerable Win32 API. It fused DirectX with the kernel. A gigantic bet that will take a few years to pay off as it broke backwards compatibility. Steven Sinofsky pushed RT very aggressively and judging from the commentaries in the blogosphere a large percentage of users have pushed back.

Sinofsky is out and W9 will probably have an option allowing users to retain the classic user interface and hide the Metro tiles. Maybe there will be a service pack with that option.

Anyhow, essentially a decent quarter for Microsoft. FY12 ending in June will probably be decent too. Looking forward to a much better FY13 and FY14 with W9.

Sinofsky is not the one who made the design decision about removing the start menu. The new Windows division head is the one who made that decision. Its not coming back. And based on Win8 sales so far, no one aside from the usual luddites and angry geeks gives a damn.

I am somewhat surprised at the numbers given my personal dislike if windows 8. However, even if Microsoft had flopped on it, it still wouldn't have been the death of the PC. Anyone who thinks it would sound the death of the PC doesn't have a clue how to REALLY use their PC. Im glad Microsoft is doing well here. Like the previous poster mentioned, Win9 will probably fix the issues in win8.

Personally, i installed win 8 on one of my PCs, used a third party app to disable metro and restore the start menu. I refer to it as my Win7 SP2 machine.

Oh, and as far as the popularity of Windows 8, the masses seem to love it. Most who lurk here may have a dissatisfaction with it, but my little sister, mother, and girlfriend seem to love it. I think them loving it is far more important to sales than the tech savvy loving it.

The press keeps on about the death of the PC, but there is no valid replacement for content creation, gaming (excluding the casual game market), software development and most office work.

Sure, laptops can be used in most situations where a desktop PC is used. But if you want to run any intensive application, the laptop is going to heat up and they don't have the graphics power to get the most out of the latest triple-A games.

The problem is that the market is currently saturated, with people replacing PCs infrequently and the people who don't need a PC to do what they need replacing them with mobile devices instead.

That isn't to say that the PC market is dead, it's just not as big as it was.

Also, there are a lot of gamers and enthusiasts that build their own PCs. Are they included in the PC sales, or is it just the pre-built PCs that are counted?

Oh, and as far as the popularity of Windows 8, the masses seem to love it. Most who lurk here may have a dissatisfaction with it, but my little sister, mother, and girlfriend seem to love it. I think them loving it is far more important to sales than the tech savvy loving it.

The funny thing for me was I was nervous about putting it in front of the less tech savvy friends and family in my circle. But so far everyone I have installed it for has absolutely loved it. Like, way more than I do.

Its been a huge reminder that power users really do not have a good concept of what is useful and fun to use. Hell, most of us dissed the iPhone and iPad for reasons like walled gardens and 'too simple' interfaces. We were wrong then. Those still holding on to those ideas when talking about Win8 are wrong now.

The press keeps on about the death of the PC, but there is no valid replacement for content creation, gaming (excluding the casual game market), software development and most office work.

Sure, laptops can be used in most situations where a desktop PC is used. But if you want to run any intensive application, the laptop is going to heat up and they don't have the graphics power to get the most out of the latest triple-A games.

The problem is that the market is currently saturated, with people replacing PCs infrequently and the people who don't need a PC to do what they need replacing them with mobile devices instead.

That isn't to say that the PC market is dead, it's just not as big as it was.

Also, there are a lot of gamers and enthusiasts that build their own PCs. Are they included in the PC sales, or is it just the pre-built PCs that are counted?

I just wanted to point out that a laptop IS a personal computer. I'd also think a smartphone is a personal computer, albeit underpowered, since they are usually quite personal and they do compute.

If we have a leap in battery technology, smartphones would be able to make quite a leap in terms of raw power. Or, we could increase the power of smartphones sans new battery technology, perhaps by simply dictating the processing power available based on whether it is plugged into a dock or running on the battery.

Author, non-GAAP is wires and mirrors. To defend a company with non-GAAP issues is laughable. Microsoft's future is truly in question. Too much of Microsoft is stuck in the last century. Apple and Google are nimble. Microsoft is not.

Okay, let me make this clear Peter, we know you want to be invited to Steve Ballmer's mansion and awarded the Knights Medallion for Services Rendered unto the Empire... but this has gone beyond ludicrous.

Let me spell this out for you:

Microsoft spent a certain amount of money in 2011Microsoft gained an income of a certain amount of money in 2011

The difference between the amount of money spent and the amount of money gained is the: "Profit Margin"

Microsoft spent a certain amount of money in 2012Microsoft gained an income of a certain amount of money in 2012

The difference between the amount of money spent and the amount of money gained is the: "Profit Margin"

If a company is run correctly the amount of money spent is in either an equal or lesser ratio to the amount of money gained as income.

If the profit margin percentage remains the same, then company has been able to keep their expenditures and their income equalized.

If the profit margin increases, then the company has either been able to grow their income, or decrease their expenses.

* * *

If a company is run poorly, then the amount of money spent is a greater ratio to the amount of money gained as income.

If the profit margin decreases, then the company has either not been able to grow their income at the same ratio as their expenditures, or the expenses have increased out of ratio with the amount of income.

* * *

In simple terms: Microsoft's profits were DOWN.... yet again.

This means that Microsoft may have increased the amount of the they gained, but it also means that they spent far more money as well.

Looking ahead to 2013 this trend will continue. Microsoft is spending large amounts of money in order to try and push sales of Windows 8 products that are simply not selling. Microsoft is also about to have to take several charges in the run-up to the Project Durango launch.

This is why smart investors quickly wiped out the daily gains Microsoft had made in after-hours trading.

* * *

Look Peter, I don't know what your issue is. I really don't know if Ars is paying you to try and spin Microsoft as something of a good thing... I don't know if you accept a side payment from Microsoft as an un-official spokesperson...

but let's be clear here. You spent a good amount of last year talking up Windows 8 like it was a good thing... and ultimately you were wrong.

You are still trying to somehow make Microsoft look like a good thing.

Please stop.

You are torquing those of us who are capable of understanding basic economics and business practices off. I'm a getting a little tired of having to correct you. Multiple times.

Zerias, the idea that everyone with a different opinion must be getting paid to express them by some vested interest, rather than simply having a different view of things, is extremely tedious and adds nothing to the discussion. If you have evidence that someone is being paid to offer an opinion rather than genuinely holding it then please present it, if you have no evidence then casting such aspersions is pretty rude. You're essentially accusing Peter of fraud and corruption based on him disagreeing with you.

I agree with several posters here that a lot of consumers, used to smart phones and tablets, will like Windows 8 while the "tech savvy" will know how to install classic shell, boot to the desktop, disable annoying swipes and change their default programmes to proper desktop ones and so be able to ignore the metro stuff altogether while enjoying the marginal, but real, increases in Window 8's general performance.

Author, non-GAAP is wires and mirrors. To defend a company with non-GAAP issues is laughable. Microsoft's future is truly in question. Too much of Microsoft is stuck in the last century. Apple and Google are nimble. Microsoft is not.

It's hardly smoke and mirrors (which I assume is what you meant?).

Booking the revenue before the product is delivered is unwise. There could have been some late-breaking issue with Windows 8, Office 2013, or Halo 4 that forced Microsoft to delay the product and issue refunds. Or Microsoft could have gone bankrupt; the people sold these deferred copies would all be creditors. Microsoft's deferral accounting accommodates this. The company takes a hit in the run up to a new launch (keeping some revenue segregated because its corresponding product hasn't shipped) but then has a boost later on.

Treating this kind of income as deferred income is not unusual, and the question of how best to book revenue for software licenses that include this kind of liability is an open one.

In point of fact, Microsoft used not to break out unearned revenue (that is to say, revenue where the money had been received but the product hadn't yet been delivered) in this way. The company started doing so in response to an SEC investigation between August 1999 and June 2002. The SEC was concerned that Microsoft was manipulating its figures to smooth its earnings results. The decision to break out the unearned revenue for upgrades (and hence produce more "uneven" quarterly numbers) was an effort to appear more transparent and assuage the concerns of investors and regulators alike.

People who keep saying PCs are dead are clueless how the world runs. PCs are essential to businesses and are not replaceable in most cases. OS X, Linux, or smartphones, it doesn't matter. They cannot replace the productivity you get with the current PCs. Businesses don't f*ck around with the productivity like some consumers choose to do so by playing around with alternative OSes.

All those Apple and Android mobile gadgets are nice additions at the moment but eventually they will all likely be replaced by Windows mobile devices. Why? Because it will be easier to change mobile OS to match desktop OS than the other way around. And yes, they will converge. W8 and WP8 are just a start and it will be more obvious going forward. Mark my words!

Are you serious? The article is about Microsoft's revenue increasing despite media claims that the PC is dead. If the PC were dying, Microsoft's PC-related revenue should be decreasing. If Microsoft's revenue is increasing and it's profits are decreasing, that is an entirely different matter.

Oh, and as far as the popularity of Windows 8, the masses seem to love it. Most who lurk here may have a dissatisfaction with it, but my little sister, mother, and girlfriend seem to love it. I think them loving it is far more important to sales than the tech savvy loving it.

Seems to be the way here too. My son (Uni IT student and tech geek) just shocked me by purchasing an Ultrabook PC and then upgrading it to Windows 8. Seems his Android Transformer and smart phone just didn't cut it for work efficiency. My daughter(Science student) is looking to replace her laptop PC with an Ultrabook too, that's to go with her Android tablet & smart phone plus Ipod touch. Repeat similar for wife and youngest daughter.

People who keep saying PCs are dead are clueless how the world runs. PCs are essential to businesses and are not replaceable in most cases. OS X, Linux, or smartphones, it doesn't matter. They cannot replace the productivity you get with the current PCs. Businesses don't f*ck around with the productivity like some consumers choose to do so by playing around with alternative OSes.

All those Apple and Android mobile gadgets are nice additions at the moment but eventually they will all likely be replaced by Windows mobile devices. Why? Because it will be easier to change mobile OS to match desktop OS than the other way around. And yes, they will converge. W8 and WP8 are just a start and it will be more obvious going forward. Mark my words!

Consider yourself marked, but the important thing is that there's data freedom were whatever a computer owner (on any platform) creates can be used on any other platform.

In fact, W7 is such an incredibly good product that it will make it very difficult for successive releases of Windows to establish and lay claim of their own niches.

And that's the killer shot. If a machine can run XP it can also run Windows 7 better. We have already reached the threshold of good enough for mainstream computing. Those spectacular days when a new (desktop) processor architecture meant a 50%+ performance increase as just long gone.

Oh, and as far as the popularity of Windows 8, the masses seem to love it. Most who lurk here may have a dissatisfaction with it, but my little sister, mother, and girlfriend seem to love it. I think them loving it is far more important to sales than the tech savvy loving it.

The funny thing for me was I was nervous about putting it in front of the less tech savvy friends and family in my circle. But so far everyone I have installed it for has absolutely loved it. Like, way more than I do.

Its been a huge reminder that power users really do not have a good concept of what is useful and fun to use. Hell, most of us dissed the iPhone and iPad for reasons like walled gardens and 'too simple' interfaces. We were wrong then. Those still holding on to those ideas when talking about Win8 are wrong now.

I'd like to add my perspective and two cents here. This really isn't a flame bait, but I sincerely think that power users would, at the very least, have no issues with Windows 8. There are two reasons for this:

First, anyone who substantially used anything but the search box in the start menu is not really as much of a power user as they think. Similarly, hard core power users typically use the keyboard over the mouse in the crushing majority of circumstances.

On the first count, the start screen really makes very little difference for me since pressing the Windows key and typing performs essentially in the same way—though I do miss the fact that Windows 7 did a universal search as opposed to the category-driven approach Windows 8 takes. A bonus, though, is the fact that every now and then a live tile catches my eye with something interesting, which is a nice perk if nothing else.

On the second count, Windows 8 has added a ton of new keyboard shortcuts that make me work that much faster around the machine than I could in Windows 7. The shortcuts aren't perfect—there are some annoying discrepancies between desktop-style and metro-style shortcuts—but take my word for it, they're quite a bit better. I'm a die-hard keyboard-shortcut junkie—I'm a developer and can't design to save my life, but learn Photoshop's keyboard shortcuts and you'll work simple tasks faster than the experts using a mouse.

So the point I'm trying to make is that, in my eyes, experience power users have, at the very least, nothing to hate about Windows 8. And from my and other people's experience, casual users seem to love it quite a bit. There is, though, the class in between the two that's having the hardest time with it. I just feel a tad annoyed to be lumped into the "power users hate Windows 8" when, in fact, as a true power user, even the additions to the surface—that is, not to mention the great performance improvements—are making my life easier.

Peter Bright has more IQ in his little finger than you have in half your head. And I mean this on a very personal note. I would say it straight to your face. And maybe give you a lot more than you bargained for, too. Get lost, troll.

Look Peter, I don't know what your issue is. I really don't know if Ars is paying you to try and spin Microsoft as something of a good thing... I don't know if you accept a side payment from Microsoft as an un-official spokesperson...

but let's be clear here. You spent a good amount of last year talking up Windows 8 like it was a good thing... and ultimately you were wrong.

You are still trying to somehow make Microsoft look like a good thing.

Please stop.

You are torquing those of us who are capable of understanding basic economics and business practices off. I'm a getting a little tired of having to correct you. Multiple times.

I have no idea where you get that from. Peter has been quite critical of Windows 8 in recent months, on some occasions I thought unfairly, but he certainly isn't fawning over it and is being quite direct. Nothing wrong with people being enthusiastic about a product before release either, regardless of result.

Microsoft really has been performing terribly over the last years. They seem to be unable to make new products that people like.

On the plus side however is that their old products still dominate the Market. In the business world, MS Office is the gold standard, which in return leads to people wanting to use it privately as well.At home, Windows is still the only platform for serious gamers.

I think we will see that advantage being reduced slowly though. Especially the home market will eventually be less Microsoft dominated, although a real change is probably still many years in the future. But at least on the gaming side we see some movement. Gaming consoles are gaining in popularity compared to the PC, with OpenGL slowly catching up with DirectX, Mac ports of games are ever more frequent and there are even some major Linux titles. Plus the entire mobile market also absorbs some of that.

On the business side, it's much harder to envision anything breaking the Microsoft dominance. Apple does have some business solutions, but they're obviously not that successful in pushing them. I guess that existing Microsoft infrastructure also helps a lot. If Apple really worked on providing specific business solutions, they could snatch a real chunk there I guess, but then again, that would be about volume not profit I guess. Other than that, we'd need some big IT company to create Linux solutions for businesses as the vast majority of office jobs could easily be done on Linux (or BSD or anything of that sort). The biggest stumbling block there are probably IT departments everywhere who fear the extra work load a switch to a different OS might entail.

Be that as it may, my point is that while Microsoft may appear to be dusty and old, it can go on riding that horse for some time to come as there's no real challenger on its core fields of business, despite terrible products such as Win8.

Booking the revenue before the product is delivered is unwise. There could have been some late-breaking issue with Windows 8, Office 2013, or Halo 4 that forced Microsoft to delay the product and issue refunds. Or Microsoft could have gone bankrupt; the people sold these deferred copies would all be creditors. Microsoft's deferral accounting accommodates this. The company takes a hit in the run up to a new launch (keeping some revenue segregated because its corresponding product hasn't shipped) but then has a boost later on.

Oh sure. If you have some way of knowing exactly what the income will be, say in a subscription or an amortized schedule of payments, it makes sense to defer that portion of income to the quarter in which it is actually due rather than account for it in one lump sum. After all, you may not actually get all the payments, so if you don't defer this income you might have to adjust your income statements after the fact to account for incomes not actually received. Analysts and accountants prefer to avoid revising earnings statements after the fact.

Quote:

Treating this kind of income as deferred income is not unusual, and the question of how best to book revenue for software licenses that include this kind of liability is an open one.

In point of fact, Microsoft used not to break out unearned revenue (that is to say, revenue where the money had been received but the product hadn't yet been delivered) in this way. The company started doing so in response to an SEC investigation between August 1999 and June 2002. The SEC was concerned that Microsoft was manipulating its figures to smooth its earnings results. The decision to break out the unearned revenue for upgrades (and hence produce more "uneven" quarterly numbers) was an effort to appear more transparent and assuage the concerns of investors and regulators alike.

You actually have this exactly reversed. It is not only unusual to defer the kinds of income MS was deferring, but the SEC made them stop. Which is why they no longer do it as part of their GAAP, and have to release non-GAAP statements to try and make earnings look not quite so bad. The following link is to an article that explains what the SEC made them stop doing, and why.

Essentially, if you can cherry-pick what and how much income in each quarter to defer to the next quarter. you can make declining profits look almost reasonable. All you have to do is defer enough income to cover losses you can see coming in the next quarter. That way you have a "rabbit" to pull out of the hat if things turn out to be as you estimated. After all, if you see a train wreck coming it's not hard to avoid it when you can just juggle the books to make it look more like a fender bender.

I suspect there was a mad rush to buy Windows 7 before it became unavailable.

Windows Licenses don't work that way. You can always downgrade for free. Buying Windows 8 now also gives you rights to Windows 7.

Only for Windows 8 Pro, regular Windows 8 does not include downgrade rights.

And it has to be the full version, not the upgrade version. I really don't care though, as 8 is working fine for me with classic shell installed. 3 machines in my house running 8 now that were not running 7 since upgrade to 7 was expensive and 8 was cheap.